Compare Post Closing Working Capital

Skill: Compare Post-Closing Working Capital Dispute

1. Subject-matter triage

• Confirm the task is a post-closing working capital dispute and identify the governing sources in this order: SPA definition, closing statement, supporting schedules, then any reconciliation exhibits.
• Determine whether the analysis involves one measurement date and one benchmark or multiple dates/variants; if more than one, enumerate each before comparing them.
• Separate operating working capital from debt, cash, tax items, purchase-price mechanics, and any special carve-outs before doing any math.

2. Failure modes the skill is correcting

• Accepting the buyer’s or seller’s closing statement without rebuilding the calculation from the operative definition.
• Treating a category as included because it appears on the balance sheet, even though the SPA excludes or redefines it.
• Missing offsets, duplications, unsupported balances, or arithmetic errors in subtotals and roll-forwards.
• Identifying a mistake without stating its quantitative effect on working capital and which side it favors.
• Stopping at issue-spotting instead of recomputing the corrected working capital and the resulting true-up.

3. Legal frameworks / domain conventions that apply

• Operative-definition control: the SPA definition governs over financial statement labels; use the contract’s included and excluded categories as the only lens for classification.
• Current asset / current liability mechanics: only items that fit the contractual definition belong in the working capital basket, even if they are current under accounting presentation.
• Carve-outs and special exclusions: tax balances, restricted cash, intercompany amounts, transaction-related accruals, extraordinary items, and non-operating balances often require separate treatment.
• Measurement-date consistency: compare like with like as of the agreed closing date or reference date; do not mix post-closing adjustments, hindsight valuations, or later corrected books into the closing snapshot unless the SPA permits it.
• Source-document hierarchy: if the SPA, schedules, and closing statement conflict, follow the contract first, then reconcile the supporting financials to it.
• Comparative consequence rule: every identified issue should end with its magnitude, its interaction with another source item or contract provision, and its downstream effect on the adjustment claim.
• Governing authority: cite the controlling SPA provision by section or defined term when stating any contractual proposition; if a legal principle is invoked, tie it to the relevant contract language or recognized accounting convention rather than to a bare conclusion.

4. Analytical scaffolds

1. Extract the operative working capital definition and list the included asset categories, included liability categories, and express exclusions.
2. List every balance sheet line item and supporting adjustment item appearing in the source materials.
3. For each line item, ask three questions:
   • Is it contractually included?
   • Is the stated amount correct and supported?
   • Does it duplicate, offset, or omit another item?
4. Recompute each subtotal independently from the underlying support, not from the buyer’s summary.
5. Classify each issue by type: misclassification, omission, duplicate, unsupported balance, or arithmetic error.
6. For each issue, state:
   • the stated amount,
   • the corrected amount,
   • the net impact on working capital,
   • whether the correction increases or decreases working capital,
   • which party benefits from the error.
7. If multiple periods, classes, or scenarios are in play, run the same analysis separately for each enumerated item and keep the results distinct.
8. Rebuild the corrected working capital total and compare it to the contractual target, benchmark, or peg.
9. Apply any collar, threshold, basket, or dispute mechanism only after the corrected number is established.
10. Conclude with the implied true-up amount and the practical next step for resolving the dispute.

5. Vertical / structural / temporal relationships

• Track how a change in one balance affects the overall basket only after identifying whether the related counter-balance or offset is also in scope.
• Distinguish opening balances, closing balances, post-signing cleanup entries, and post-closing adjustments; do not net them together unless the SPA expressly allows it.
• If a line item is tied to another schedule, note the cross-reference and confirm both sources are aligned before accepting either figure.
• Where the closing statement uses a roll-forward, verify each bridge step in sequence so a hidden arithmetic break is not masked by the final total.

6. Output structure conventions

• Write a working-capital comparison memo, not a generic issue list.
• Use a short executive summary, then a line-by-line comparison table, then a corrected calculation section, then a true-up and recommendations section.
• For each issue entry, include the source line item, the contract treatment, the stated amount, the corrected amount, the net impact on working capital, and the directional effect on the buyer/seller.
• Include a compact error summary table that makes the correction path visible from the source amount to the revised amount.
• Include a final reconciliation that shows the corrected working capital, the target or peg, and the resulting amount owed.
• End with an explicit Recommended Actions section that gives concrete next steps, assigns each action to the appropriate business/legal role, and ties timing to the dispute or closing process.
• Keep the memo self-contained and precise; avoid narrative that does not advance the comparison or the recomputation.